UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





x
            Quarterly
      Report Pursuant to Section 13 or 15 (d) of the Securities
      Exchange Act of 1934




For
the quarterly period ended September 30, 2009.


or





 ̈
            Transition
      Report Pursuant to Section 13 or 15 (d) of the Securities
      Exchange Act of 1934




For
the transition period from 
to




Commission
file number: 000-26393







WebMediaBrands
Inc.


(Exact
name of Registrant as specified in its charter)







Delaware
            
            06-1542480(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)50
      Washington Street, Suite 912
              Norwalk,
      Connecticut
            
            06854(Address
      of principal executive offices)
            
            (Zip
      Code)




(203)
662-2800


(Registrant’s
telephone number, including area code)




23
Old Kings Highway South


Darien,
CT  06820


(Former
name, former address and former fiscal year, if changed since last
report)








Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days    Yes   x
    No    ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes    ̈
    No    ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act: (Check
one):


Large
      accelerated filer    ̈
            
            Accelerated
      filer    ̈Non-accelerated
      filer    ̈
            
            Smaller
      reporting company   x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):    Yes    ̈
    No   x




The
number of outstanding shares the Registrant’s common stock, par value $.01 per
share, as of November 10, 2009 was 36,921,737.











WebMediaBrands
Inc.


Index




PagePART
      I. Financial InformationItem
      1.
              Financial
      StatementsConsolidated
      Condensed Balance Sheets – December 31, 2008 and September 30, 2009
      (unaudited)
              3Unaudited
      Consolidated Condensed Statements of Operations – For the Three and Nine
      Months Ended September 30, 2008 and 2009
              4Unaudited
      Consolidated Condensed Statements of Cash Flows – For the Nine Months
      Ended September 30, 2008 and 2009
              5Notes
      to Unaudited Consolidated Condensed Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              18Item
      3.
              Quantitative
      & Qualitative Disclosures about Market Risk
              24Item
      4.
              Controls
      and Procedures
              25PART
      II. Other InformationItem
      1A.
              Risk
      Factors
              26Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              26Item
      3.
              Defaults
      Upon Senior Securities
              26Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              26Item
      5.
              Other
      Information
              26Item
      6.
              Exhibits
              26Signatures
              
              27





2




WebMediaBrands Inc.


Consolidated
Condensed Balance Sheets


December 31,
2008 and September 30, 2009


(in
thousands, except share and per share amounts)





December 31,
              2008
            
            
            September
      30,
              2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            3,755
            
            
            $
            4,134Accounts
      receivable, net of allowances of $438 and $167,
    respectively
            
            
            6,673
            
            
            
            3,229Prepaid
      expenses and other current assets
            
            
            4,040
            
            
            
            2,219Deferred
      income taxes
            
            
            53
            
            
            
            —Assets
      of discontinued operations
            
            
            14,138
            
            
            
            —Total
      current assets
            
            
            28,659
            
            
            
            9,582Property
      and equipment, net of accumulated depreciation of $9,947 and $9,814,
      respectively
            
            
            2,424
            
            
            
            2,114Intangible
      assets, net
            
            
            3,060
            
            
            
            2,362Goodwill
            
            
            26,062
            
            
            
            27,378Investments
      and other assets
            
            
            2,564
            
            
            
            1,137Assets
      held for sale and of discontinued operations
            
            
            101,324
            
            
            
            3,200Total
      assets
            
            $
            164,093
            
            
            $
            45,773LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            1,074
            
            
            $
            716Accrued
      payroll and related expenses
            
            
            1,557
            
            
            
            1,533Accrued
      expenses and other current liabilities
            
            
            5,224
            
            
            
            1,893Current
      portion of long-term debt
            
            
            81,213
            
            
            
            —Deferred
      revenues
            
            
            2,347
            
            
            
            2,127Liabilities
      of discontinued operations
            
            
            25,937
            
            
            
            —Total
      current liabilities
            
            
            117,352
            
            
            
            6,269Loan
      from related party
            
            
            —
            
            
            
            7,197Deferred
      revenues
            
            
            108
            
            
            
            100Deferred
      income taxes
            
            
            1,266
            
            
            
            1,530Fair
      value of interest rate swap
            
            
            7,559
            
            
            
            —Other
      long-term liabilities
            
            
            205
            
            
            
            158Liabilities
      of discontinued operations
            
            
            2,727
            
            
            
            —Total
      liabilities
            
            
            129,217
            
            
            
            15,254Commitments
      and contingencies (see note 12)Stockholders’
      equity:Preferred
      stock, $.01 par value, 4,000,000 shares authorized, no shares
      issued
            
            
            —
            
            
            
            —Common
      stock, $.01 par value, 75,000,000 shares authorized, 36,032,152 and
      36,976,237 shares issued, respectively
            
            
            360
            
            
            
            370Additional
      paid-in capital
            
            
            273,324
            
            
            
            279,233Accumulated
      deficit
            
            
            (234,479
            )
            
            
            (249,006
            )Treasury
      stock, 65,000 shares at cost
            
            
            (106
            )
            
            
            (106
            )Accumulated
      other comprehensive income (loss)
            
            
            (4,223
            )
            
            
            28Total
      stockholders’ equity
            
            
            34,876
            
            
            
            30,519Total
      liabilities and stockholders’ equity
            
            $
            164,093
            
            
            $
            45,773




See notes
to unaudited consolidated condensed financial statements.


3







WebMediaBrands Inc.


Unaudited
Consolidated Condensed Statements of Operations


For
the Three and Nine Months Ended September 30, 2008 and 2009


(in
thousands, except per share amounts)





Three
      Months Ended
              September 30,
            
            
            Nine
      Months Ended
              September 30,2008
            
            
            2009
            
            
            2008
            
            
            2009Revenues
            
            $
            7,575
            
            
            $
            4,540
            
            
            $
            24,889
            
            
            $
            16,143Cost
      of revenues (exclusive of items shown separately below)
            
            
            4,265
            
            
            
            2,899
            
            
            
            13,308
            
            
            
            10,313Advertising,
      promotion and selling
            
            
            2,005
            
            
            
            1,406
            
            
            
            6,198
            
            
            
            4,795General
      and administrative
            
            
            4,488
            
            
            
            2,319
            
            
            
            16,251
            
            
            
            10,211Depreciation
            
            
            299
            
            
            
            276
            
            
            
            761
            
            
            
            824Amortization
            
            
            811
            
            
            
            216
            
            
            
            2,432
            
            
            
            700Impairment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            662Restructuring
      charge
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            875Total
      operating expenses
            
            
            11,868
            
            
            
            7,116
            
            
            
            38,950
            
            
            
            28,380Operating
      loss from continuing operations
            
            
            (4,293
            )
            
            
            (2,576
            )
            
            
            (14,061
            )
            
            
            (12,237
            )Other
      income (loss), net
            
            
            (6
            )
            
            
            48
            
            
            
            (11
            )
            
            
            179Interest
      income
            
            
            6
            
            
            
            3
            
            
            
            12
            
            
            
            161Interest
      expense
            
            
            (1,625
            )
            
            
            (182
            )
            
            
            (5,198
            )
            
            
            (1,674
            )Loss
      on extinguishment of debt
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,119
            )Loss
      on fair value of interest rate swap
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (6,732
            )Loss
      from continuing operations before income taxes and noncontrolling
      interest
            
            
            (5,918
            )
            
            
            (2,707
            )
            
            
            (19,258
            )
            
            
            (22,422
            )Provision
      (benefit) for income taxes
            
            
            15,908
            
            
            
            975
            
            
            
            15,941
            
            
            
            (1,605
            )Noncontrolling
      interest
            
            
            (19
            )
            
            
            —
            
            
            
            (25
            )
            
            
            11Loss
      from continuing operations
            
            
            (21,845
            )
            
            
            (3,682
            )
            
            
            (35,224
            )
            
            
            (20,806
            )Income
      (loss) from discontinued operations
            
            
            (38,641
            )
            
            
            —
            
            
            
            (30,914
            )
            
            
            208Gain
      (loss) on sale of discontinued operations
            
            
            —
            
            
            
            (40
            )
            
            
            —
            
            
            
            7,019Provision
      for income taxes from discontinued operations
            
            
            2,136
            
            
            
            923
            
            
            
            880
            
            
            
            948Net
      loss
            
            $
            (62,622
            )
            
            $
            (4,645
            )
            
            $
            (67,018
            )
            
            $
            (14,527
            )Income
      (loss) per share:BasicLoss
      from continuing operations
            
            $
            (0.61
            )
            
            $
            (0.10
            )
            
            $
            (0.98
            )
            
            $
            (0.57
            )Income
      (loss) from discontinued operations
            
            
            (1.13
            )
            
            
            (0.03
            )
            
            
            (0.88
            )
            
            
            0.17Net
      loss
            
            $
            (1.74
            )
            
            $
            (0.13
            )
            
            $
            (1.86
            )
            
            $
            (0.40
            )DilutedLoss
      from continuing operations
            
            $
            (0.61
            )
            
            $
            (0.10
            )
            
            $
            (0.98
            )
            
            $
            (0.57
            )Income
      (loss) from discontinued operations
            
            
            (1.13
            )
            
            
            (0.03
            )
            
            
            (0.88
            )
            
            
            0.17Net
      loss
            
            $
            (1.74
            )
            
            $
            (0.13
            )
            
            $
            (1.86
            )
            
            $
            (0.40
            )Shares
      used in computing income (loss) per share:Basic
            
            
            35,967
            
            
            
            36,813
            
            
            
            35,967
            
            
            
            36,377Diluted
            
            
            35,967
            
            
            
            36,813
            
            
            
            35,967
            
            
            
            36,377




See notes
to unaudited consolidated condensed financial statements.





4




WebMediaBrands Inc.


Unaudited
Consolidated Condensed Statements of Cash Flows


For
the Nine Months Ended September 30, 2008 and 2009


(in
thousands)





Nine
      Months Ended
              September
      30,2008
            
            
            2009Cash
      flows from operating activities:Net
      loss
            
            $
            (67,018
            )
            
            $
            (14,527
            )Less: Loss
      from discontinued operations, net of tax
            
            
            (31,794
            )
            
            
            (740
            )Less:
      Gain on sale of discontinued operations
            
            
            —
            
            
            
            7,019Loss
      from continuing operations
            
            
            (35,224
            )
            
            
            (20,806
            )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Loss
      on fair value of swap
            
            
            —
            
            
            
            6,732Depreciation
      and amortization
            
            
            3,193
            
            
            
            1,524Impairment
            
            
            —
            
            
            
            662Stock-based
      compensation
            
            
            3,972
            
            
            
            2,447Provision
      for losses on accounts receivable
            
            
            99
            
            
            
            48Noncontrolling
      interest
            
            
            25
            
            
            
            (11
            )Other
      income, net
            
            
            —
            
            
            
            (150
            )Amortization
      of debt issuance costs
            
            
            223
            
            
            
            11Loss
      on extinguishment of debt
            
            
            —
            
            
            
            2,119Deferred
      income taxes
            
            
            15,193
            
            
            
            (2,561
            )Excess
      tax benefit from stock-based compensation
            
            
            —
            
            
            
            (3,226
            )Changes
      in operating assets and liabilities (net of businesses
      acquired/disposed):Accounts
      receivable, net
            
            
            870
            
            
            
            3,220Prepaid
      expenses and other assets
            
            
            1,452
            
            
            
            4,520Accounts
      payable and accrued expenses and other liabilities
            
            
            (1,231
            )
            
            
            (2,734
            )Deferred
      revenues
            
            
            117
            
            
            
            (228
            )Discontinued
      operations
            
            
            23,529
            
            
            
            (2,282
            )Net
      cash provided by (used in) operating activities
            
            
            12,218
            
            
            
            (10,715
            )Cash
      flows from investing activities:Purchases
      of property and equipment
            
            
            (1,973
            )
            
            
            (539
            )Purchases
      of businesses, assets and other
            
            
            (854
            )
            
            
            (1,630
            )Proceeds
      from sale of assets and other
            
            
            295
            
            
            
            —Proceeds
      from sale of discontinued operations
            
            
            —
            
            
            
            91,205Discontinued
      operations
            
            
            (7,569
            )
            
            
            (217
            )Net
      cash provided by (used in) investing activities
            
            
            (10,101
            )
            
            
            88,819Cash
      flows from financing activities:Debt
      issuance costs
            
            
            (15
            )
            
            
            (384
            )Borrowings
      under long-term obligations
            
            
            1,600
            
            
            
            —Borrowings
      from related party
            
            
            —
            
            
            
            7,197Settlement
      of interest rate swap
            
            
            —
            
            
            
            (6,732
            )Repayment
      of borrowings under credit facilities
            
            
            (6,615
            )
            
            
            (81,213
            )Proceeds
      from exercise of stock options
            
            
            7
            
            
            
            246Excess
      tax benefit from stock-based compensation
            
            
            —
            
            
            
            3,226Net
      cash used in financing activities
            
            
            (5,023
            )
            
            
            (77,660
            )Effects
      of exchange rates on cash and cash equivalents
            
            
            29
            
            
            
            (65
            )Net
      change in cash and cash equivalents
            
            
            (2,877
            )
            
            
            379Cash
      and cash equivalents, beginning of period
            
            
            7,301
            
            
            
            3,755Cash
      and cash equivalents, end of period
            
            $
            4,424
            
            
            $
            4,134Supplemental
      disclosures of cash flow:Cash
      refund of income taxes, net
            
            $
            1,204
            
            
            $
            1,320Cash
      paid for interest
            
            $
            5,062
            
            
            $
            1,660Non-cash
      investing activities:Acquisitions
      of long-lived assets
            
            $
            219
            
            
            $
            23




See notes
to unaudited consolidated condensed financial statements.


5





WebMediaBrands Inc.


Notes
to Unaudited Consolidated Condensed Financial Statements


September
30, 2009




1.
THE COMPANY




WebMediaBrands
Inc. (“WebMediaBrands” or the “Company”) is a global provider of original
information, job boards and events for information technology (“IT”), business
and creative professionals. WebMediaBrands currently includes three distinct
online networks: internet.com for IT and business professionals and for
developers; Mediabistro.com for media professionals; and Graphics.com for design
and creative professionals. WebMediaBrands also includes specialized career Web
sites for select professional communities, which can be found on Mediabistro.com
and JustTechJobs.com. In addition, WebMediaBrands includes Mediabistro events,
which produce offline conferences and trade shows focused on IT, media and
business-specific topics. On August 7, 2009, the Company agreed to sell the
assets related to its Internet.com business to QuinStreet, Inc. as described in
note 7.




2.
BASIS OF PRESENTATION




The
accompanying unaudited consolidated condensed financial statements have been
prepared from the books and records of WebMediaBrands in accordance with
accounting principles generally accepted in the United States of
America and Rule 10-01 of Regulation S-X promulgated by the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The consolidated condensed
statements of operations for the three and nine months ended September 30, 2009
are not necessarily indicative of the results to be expected for the full year
or any future interim period. Reclassifications have been made to prior period
amounts to conform to current year presentation. These unaudited consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in WebMediaBrands’s
Annual Report on Form 10-K for the year ended December 31, 2008. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results for the interim periods presented have been
reflected in such consolidated condensed financial statements. See note 8 for
additional disclosure on presentation of discontinued operations.




The
consolidated condensed financial statements include the accounts of
WebMediaBrands and its majority-owned and wholly-owned subsidiaries. All
intercompany transactions have been eliminated.




3.
RECENT ACCOUNTING PRONOUNCEMENTS





Effective
January 1, 2009, the Company adopted the accounting pronouncement relating to
business combinations. The pronouncement establishes revised principles and
requirements for how the Company will recognize and measure assets acquired and
liabilities assumed in a business combination. The pronouncement is effective
for business combinations completed by the Company on or after January 1,
2009.





On
January 1, 2009, the Company adopted the accounting pronouncement regarding
the determination of the useful life of intangible assets that removes the
requirement to consider whether an intangible asset can be renewed without
substantial cost or material modifications to the existing terms and conditions,
and replaces it with a requirement that an entity consider its own historical
experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience. This
pronouncement also requires entities to disclose information that enables users
of financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entity’s intent and/or
ability to renew or extend the arrangements. The adoption of this pronouncement
did not have a material impact on the Company’s condensed consolidated financial
statements.




On
January 1, 2009, the Company adopted the accounting pronouncement relating
to noncontrolling interests in consolidated financial statements, which
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the retained interest and gain or loss when a subsidiary
is deconsolidated. The adoption of this pronouncement had no impact on the
Company’s condensed consolidated financial statements at January 1,
2009.




6




On
January 1, 2009, the Company adopted the accounting pronouncement relating
to disclosures about derivative instruments and hedging activities, which
requires additional disclosures that include how and why an entity uses
derivatives, how these instruments and the related hedged items are accounted
for and how derivative instruments and related hedged items affect the entity’s
financial position, results of operations and cash flows. The adoption of this
pronouncement had no impact on the Company’s condensed consolidated financial
statements.




On
June 30, 2009, the Company adopted the accounting pronouncement that amends
the requirements for disclosures about fair value of financial instruments for
annual, as well as interim, reporting periods. This pronouncement was effective
prospectively for all interim and annual reporting periods ending after
June 15, 2009. The disclosure requirements are required to be included in
the Company’s consolidated financial statements beginning with the
quarter ended June 30, 2009 and have not had an impact on the
Company’s financial statements.





On
June 30, 2009, the Company adopted the accounting pronouncement regarding
the general standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before the financial statements are issued.
This pronouncement was effective prospectively for interim and annual reporting
periods ending after June 15, 2009. WebMediaBrands adopted this
pronouncement in the second quarter of 2009 and evaluated subsequent events
after the balance sheet date through November 13, 2009.









In June
2009, the FASB issued an accounting pronouncement relating to
transfers and servicing of assets and liabilities and will require entities to
provide more information about sales of securitized financial assets and similar
transactions, particularly if the seller retains some risk with respect to the
assets. The pronouncement is effective for fiscal years beginning after November
15, 2009. WebMediaBrands is currently evaluating the impact that the adoption of
the pronouncement will have on its consolidated financial
statements.





In June
2009, the FASB issued an accounting pronouncement relating to variable
interest entities and requires enhanced disclosures about an enterprise’s
involvement in a variable interest entity. This pronouncement also requires
ongoing assessments of whether an enterprise is the primary beneficiary of a
variable interest entity. The pronouncement is effective for the Company
beginning January 1, 2010. WebMediaBrands is currently reviewing the effect of
the pronouncement, but does not expect that the adoption of the pronouncement
will have an effect on its consolidated financial statements.




In June 2009, the FASB issued amendments to the accounting pronouncement for
variable interest entities (“VIEs”) and for transfers of financial assets. The
amendments require an enterprise to make a qualitative assessment whether it has
(i) the power to direct the activities of the VIE that most significantly impact
the entity’s economic performance and (ii) the obligation to absorb losses of
the VIE or the right to receive benefits from the VIE that could potentially be
significant to the VIE. If an enterprise has both of these characteristics, the
enterprise is considered the primary beneficiary and must consolidate the VIE.
The amendment will be effective for the Company on January 1, 2010. The adoption
of these amendments is not expected to have a material impact on the Company’s
financial statements.
 
 In August 2009, the FASB issued an accounting pronouncement that provides
guidance on the measurement of liabilities at fair value. The guidance provides
clarification for circumstances in which a quoted market price in an active
market for an identical liability is not available, an entity is required to
measure fair value using a valuation technique that uses the quoted price of an
identical liability when traded as an asset or, if unavailable, quoted prices
for similar liabilities or similar assets when traded as assets. If none of this
information is available, an entity should use a valuation technique in
accordance with existing fair value principles. The adoption of this
pronouncement is not expected to have a material impact on the Company's
financial statements.
 
 In October 2009, the FASB issued an accounting pronouncement which amends
revenue recognition guidance for arrangements with multiple deliverables. The
new guidance eliminates the residual method of revenue recognition and allows
the use of management’s best estimate of selling price for individual elements
of an arrangement when vendor specific objective evidence (“VSOE”), vendor
objective evidence (“VOE”) or third-party evidence (“TPE”) is unavailable. Full
retrospective application of the new guidance is optional. The adoption of this
pronouncement is not expected to have a material impact on the Company's
financial statements.





4.
SEGMENT INFORMATION




Segment
information is presented in accordance with the accounting pronouncement related
to segment reporting. This pronouncement is typically based on a management
approach that designates the internal organization used for making operating
decisions and assessing performance. Operating segments are defined as business
areas or lines of an enterprise about which financial information is available
and evaluated on a regular basis by the chief operating decision-makers, or
decision-making groups, in deciding how to allocate capital and other resources
to such lines of business.




As a
result of the Sale described in note 8, the Company now operates in one
reportable segment. This determination was made due to the quantitative
thresholds under the accounting pronouncement related to segment
reporting.




The
Company’s remaining segment is affected by seasonality as advertisers generally
place fewer advertisements during the first and third calendar quarters of each
year. Operating results are also impacted by the number, size and timing of
events held throughout the year.


7
 
 5.
ACCOUNTING FOR STOCK-BASED COMPENSATION
  Total
stock-based compensation during the three months ended September 30, 2008 and
2009 was $856,000 and $21,000, respectively, and $4.0 million and $2.4 million
during the nine months ended September 30, 2008 and 2009, respectively.
Stock-based compensation increased additional paid-in capital by $21,000 and
$2.4 million during the three and nine months ended September 30, 2009,
respectively. As a result of the sale of the Company’s Online images business on
February 23, 2009, as further described in note 8, all unvested options on
that date became immediately vested and all unrecognized stock-based
compensation was immediately expensed. During the nine months ended September
30, 2009, $2.4 million of the stock-based compensation expense was related to
the sale of the Online images business.




The fair
value of each option grant is estimated using the Black-Scholes option pricing
model to estimate the fair value of stock-based awards with the following
assumptions used for grants during the periods presented:





Nine Months Ended
              September
      30,2008
            
            
            2009Risk-free
      interest rate
            
            
            2.46
      %
            
            
            
            1.55%Expected
      life (in years)
            
            
            2.40
            
            
            
            3.50Dividend
      yield
            
            
            0
      %
            
            
            
            0
      %Expected
      volatility
            
            
            65
      %
            
            
            
            92
      %




The
expected stock price volatility is based on the historical volatility of
WebMediaBrands’s common stock. The risk-free interest rate is based on the
implied yield available on U.S. Treasury zero-coupon issues with an equivalent
remaining term. The expected term of the options was calculated using the
simplified method for options granted in 2008 and through the second quarter of
2009. WebMediaBrands previously had issued options with a life of ten years.
Beginning in 2007, options were issued with a five-year life. Due to the change,
WebMediaBrands did not have historical exercise data to provide a reasonable
basis upon which to estimate the expected term. As a result, the Company has
applied the simplified method, which entails averaging the life of the option
with the vesting period. Beginning in the third quarter of 2009, WebMediaBrands
began using historical data to estimate the expected term as this information is
now available.




The
weighted-average grant date fair value of options granted during the nine months
ended September 30, 2008 and 2009 was $0.65 and $0.27,
respectively.





The
following table summarizes option activity during the nine months ended
September 30, 2009:




Shares
              
              
              Weighted
                Average
                Exercise
                Price
              
              
              Weighted
                Average
                Remaining
                Contractual
                Term (years)
              
              
              Aggregate
                Intrinsic
                Value
                (in thousands)Outstanding
      at December 31, 2008
              6,848,500
              
              
              $
              2.60Granted
              1,246,300
              
              
              $
              .45Exercised
              (944,085
              )
              
              $
              .26Forfeited,
      expired or cancelled
              (1,278,736
              )
              
              $
              5.01Outstanding
      at September 30, 2009
              5,871,979
              
              
              $
              2.00
              
              
              2.77
              
              
              $
              1,381Vested
      and expected to vest at September 30, 2009
              5,759,253
              
              
              $
              2.03
              
              
              2.74
              
              
              $
              1,350Exercisable
      at September 30, 2009
              4,774,379
              
              
              $
              2.35
              
              
              2.39
              
              
              $
              1,083





8




The
aggregate intrinsic value in the table above is before income taxes, based on
WebMediaBrands’s closing stock price of $0.72 as of September 30,
2009.




During
the three months ended September 30, 2008 and 2009, the total intrinsic value of
stock options exercised was $0 and $68,000, respectively. During the nine months
ended September 30, 2008 and 2009, the total intrinsic value of options
exercised was $2,000 and $310,000, respectively.




As of
September 30, 2009, there was $247,000 of total unrecognized compensation cost
related to nonvested stock-based compensation arrangements granted under the
Company’s stock incentive plan. The Company expects to amortize that cost over a
weighted-average period of 17 months.




Cash
provided by operating activities decreased and cash provided by financing
activities increased by $3.2 million related to excess tax benefits from
stock-based payment arrangements for the nine months ended September 30,
2009.




6.
COMPUTATION OF LOSS PER SHARE




The
Company computes basic loss per share using the weighted average number of
common shares outstanding during the period. The Company computes diluted loss
per share using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options. Common equivalent shares are excluded from the calculation if their
effect is anti-dilutive.




Computations
of basic and diluted loss per share for the three and nine months ended
September 30, 2008 and 2009 are as follows (in thousands, except per share
amounts):


Three
      Months Ended
              September 30,
            
            
            Nine
      Months Ended
              September 30,2008
            
            
            2009
            
            
            2008
            
            
            2009Loss
      from continuing operations
            
            $
            (21,845
            )
            
            $
            (3,682
            )
            
            $
            (35,224
            )
            
            $
            (20,806
            )Income
      (loss) from discontinued operations
            
            
            (38,641
            )
            
            
            —
            
            
            
            (30,914
            )
            
            
            208Gain
      (loss) on sale of discontinued operations
            
            
            —
            
            
            
            (40
            )
            
            
            —
            
            
            
            7,019Provision
      for income taxes from discontinued operations
            
            
            2,136
            
            
            
            923
            
            
            
            880
            
            
            
            948Net
      loss
            
            $
            (62,622
            )
            
            $
            (4,645
            )
            
            $
            (67,018
            )
            
            $
            (14,527
            )Basic
      weighted average number of common shares outstanding
            
            
            35,967
            
            
            
            36,813
            
            
            
            35,967
            
            
            
            36,377Effect
      of dilutive stock options
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      basic weighted average number of common shares and dilutive stock
      options
            
            
            35,967
            
            
            
            36,813
            
            
            
            35,967
            
            
            
            36,377Income
      (loss) per share:BasicLoss
      from continuing operations
            
            $
            (0.61
            )
            
            $
            (0.10
            )
            
            $
            (0.98
            )
            
            $
            (0.57
            )Income
      (loss) from discontinued operations
            
            
            (1.13
            )
            
            
            (0.03
            )
            
            
            (0.88
            )
            
            
            0.17Net
      loss
            
            $
            (1.74
            )
            
            $
            (0.13
            )
            
            $
            (1.86
            )
            
            $
            (0.40
            )DilutedLoss
      from continuing operations
            
            $
            (0.61
            )
            
            $
            (0.10
            )
            
            $
            (0.98
            )
            
            $
            (0.57
            )Income
      (loss) from discontinued operations
            
            
            (1.13
            )
            
            
            (0.03
            )
            
            
            (0.88
            )
            
            
            0.17Net
      loss
            
            $
            (1.74
            )
            
            $
            (0.13
            )
            
            $
            (1.86
            )
            
            $
            (0.40
            )


9





The
following table summarizes the number of outstanding stock options excluded from
the calculation of diluted loss per share for the periods presented because the
result would have been anti-dilutive (in thousands, except weighted average
exercise price):


Three and
      Nine Months Ended
              September
      30,2008
            
            2009Number
      of anti-dilutive stock options
            
            
            6,169
            
            
            
            5,872Weighted
      average exercise price
            
            $
            3.76
            
            
            $
            2.00





7. ACQUISITION
AND DISPOSITION





On April
29, 2009 WebMediaBrands acquired the assets of Brandsoftheworld.com for $1.5
million in cash. Brandsoftheworld.com is a user generated content site where
readers view and download more than 160,000 vector format brands and
logos. The acquisition of Brandsoftheworld.com complements WebMediaBrands’s
existing online properties. The total purchase price has been allocated to the
assets based on estimates of their respective fair values.





The
following table summarizes the preliminary purchase price allocation of the
acquisition of Brandsoftheworld.com (in thousands):





Web
      site development costs
            
            $
            30Domain
      names
            
            
            49Non-compete
      agreement
            
            
            8Customer
      relationships
            
            
            145Goodwill
            
            
            1,308Total
      assets acquired
            
            $
            1,540





The
intangible assets subject to amortization are being amortized on a straight-line
basis over three years. The goodwill associated with the acquisition of
Brandsoftheworld.com is deductible for tax purposes.





The
acquisition of Brandsoftheworld.com is not material to WebMediaBrands as a whole
and therefore, pro forma financial information is not presented.





On August
7, 2009, WebMediaBrands entered into an asset purchase agreement to sell the
assets related to its Internet.com business (the “Business Assets”) to
QuinStreet Inc., a California corporation, for an aggregate purchase price of
$18.0 million in cash, subject to a working capital purchase price
adjustment.




10




The asset
purchase agreement provides that, upon its terms and subject to its conditions,
QuinStreet will purchase from WebMediaBrands, and WebMediaBrands will transfer,
assign, convey and deliver to QuinStreet, the Business Assets, and QuinStreet
will assume specified related liabilities. The transaction is not subject to a
financing condition.  The consummation of the transaction is subject
to approval by WebMediaBrands’s stockholders and other customary closing
conditions. As such, the Business Assets and operations of Internet.com are
classified within continuing operations for the periods presented. For more
detail and a copy of the asset purchase agreement, see the Company's Current
Report on Form 8-K dated August 11, 2009 and definitive proxy solicitation
materials dated November 2, 2009.




8.
ASSETS HELD FOR SALE AND OF DISCONTINUED OPERATIONS




On
February 23, 2009, the Company announced the closing of the previously
announced sale of its Online images business, or Jupiterimages, to Getty
Images, Inc. (“Getty Images”) pursuant to the terms and conditions of a stock
purchase agreement dated October 22, 2008 by and between the Company and
Getty Images (the “Agreement”) for an aggregate purchase price of $96.0 million
in cash, subject to a working capital purchase price adjustment (the “Sale”).
Any claims by Getty Images on the working capital adjustment could have a
material effect on the Company. The carrying value of the net assets of the
Online images business at the time of the Sale was $82.0 million and the sale of
the Online images business resulted in a gain of $7.1 million. As a result of
the Sale, WebMediaBrands is accounting for the operations of its Online images
business as a discontinued operation and its continuing operations is comprised
solely of its Online media business in accordance with the accounting
pronouncement related to the accounting for the impairment or disposal of
long-lived assets. Company revenues from the discontinued Online images business
for the three months and nine months ended September 30, 2008 were $23.5 million
and $75.7 million, respectively. Company revenues from the discontinued Online
images business for the nine months ended September 30, 2009 were $11.9
million.  Loss from discontinued operations for the nine months ended
September 30, 2009 of $740,000 was net of income taxes of $948,000. The
provision for income taxes from discontinued operations was primarily due to the
reversal of the income tax benefit previously recognized on the carryforward of
2005 net operating losses and the carryback of 2007 net operating losses to
2006.  The income tax provision was partially offset by the reversal of the
interest related to uncertain tax positions and other adjustments
recognized on the 2006 amended federal income tax return.  See note 11
for further discussion of these amended returns.Prior year financial
results have been presented to reflect WebMediaBrand’s Online images segment as
a discontinued operation.




Assets
and liabilities of discontinued operations were as follows (in
thousands):


December 31,
              2008Accounts
      receivable
            
            $
            12,266Prepaids
      and other current assets
            
            
            1,429Deferred
      income taxes
            
            
            443Property
      and equipment, net
            
            
            8,164Intangible
      assets, net
            
            
            51,836Goodwill
            
            
            37,382Other
      assets
            
            
            198Total
      assets
            
            $
            111,718Accounts
      payable
            
            $
            5,814Accrued
      payroll and related expenses
            
            
            1,883Accrued
      expenses and other current liabilities
            
            
            6,002Deferred
      revenue
            
            
            12,238Other
      long-term liabilities
            
            
            2,727Total
      liabilities
            
            $
            28,664




Assets
held for sale include the carrying value of the Company’s building and land in
Peoria, Illinois. The carrying value of this property was $3.7 million and $3.2
million as of December 31, 2008 and September 30, 2009, respectively.
Because of declining real estate markets, during the first quarter of 2009, the
Company listed the facility for sale at an amount that was less then the
carrying value.  As a result, the Company recorded an impairment
charge of $662,000 during the first quarter of 2009.


11




9.
INTANGIBLE ASSETS AND GOODWILL




Amortized
Intangible Assets




The
following table sets forth the intangible assets that are subject to
amortization, including the related accumulated amortization (in
thousands):


December 31,
      2008Cost
              
              Accumulated
                Amortization
              
              Net
                Carrying
                ValueCustomer
      relationships
              
              $
              3,093
              
              
              $
              (2,812
              )
              
              $
              281Web
      site development costs
              
              
              2,658
              
              
              
              (2,172
              )
              
              
              486Trademarks
              
              
              4,839
              
              
              
              (4,033
              )
              
              
              806Total
              
              $
              10,590
              
              
              $
              (9,017
              )
              
              $
              1,573
 
 September
      30, 2009Cost
              
              
              Accumulated
                Amortization
              
              
              Net
                Carrying
                ValueCustomer
      relationships
              
              $
              1,242
              
              
              $
              (975
              )
              
              $
              267Non-compete
      agreements
              
              
              8
              
              
              
              (1
              )
              
              
              7Web
      site development costs
              
              
              2,217
              
              
              
              (1,995
              )
              
              
              222Trademarks
              
              
              3,911
              
              
              
              (3,591
              )
              
              
              320Total
              
              $
              7,378
              
              
              $
              (6,562
              )
              
              $
              816


Intangibles
that are subject to amortization are amortized on a straight-line basis over
their expected useful lives. Customer relationships are amortized over periods
ranging from three to seven years, Web site development costs are amortized over
three or five years and trademarks are amortized over three years. Non-compete
agreements are amortized over the period of the agreements, typically from one
to three years.




12




Amortization
expense related to intangible assets subject to amortization was $811,000 and
$2.4 million for the three and nine months ended September 30, 2008,
respectively, and $216,000 and $700,000 for the three and nine months ended
September 30, 2009, respectively. Estimated annual amortization expense for the
next five years, including the remainder of 2009, is expected to be as follows
(in thousands):





Year
      Ending December 31,2009
            
            $
            1912010
            
            
            3792011
            
            
            1672012
            
            
            792013
            
            
            —$
            816




Unamortized Intangible Assets


December 31,
              2008
            
            September
      30,
              2009Domain
      names
            
            $
            1,487
            
            
            $
            1,546


Goodwill




WebMediaBrands conducts
its annual impairment review in the fourth quarter of each fiscal year. Due to
the continued downturn in the U.S economy and the impact that the economy has
had on the Company’s projections, WebMediaBrands anticipates that these
events will result in an impairment charge during the fourth quarter
of 2009.  WebMediaBrands will complete its valuation of impairment under
the accounting pronouncement related to the impairment of goodwill and
other long-lived assets during the fourth quarter of 2009.




The
changes in the carrying amount of goodwill for the nine months ended September
30, 2009 are as follows (in thousands):





Balance
      as of December 31, 2008
            
            $
            26,062Goodwill
      acquired during the year
            
            
            1,308Purchase
      price adjustments
            
            
            8Balance
      as of September 30, 2009
            
            $
            27,378




13




10.
DEBT AND DERIVATIVE INSTRUMENT




WebMediaBrands was party to a Credit
and Security Agreement, dated as of July 12, 2007 (the “Credit Agreement”),
with lenders (the “Lenders”), KeyBank National Association, as the lead
arranger, sole book runner and administrative agent (the “Administrative
Agent”), and Citizens Bank, N.A., as Syndication Agent. The Credit Agreement
provided for a $115.0 million senior credit facility. The senior credit facility
was comprised of (i) a $75.0 million term loan facility, that was drawn in
full on July 12, 2007, and (ii) a $40.0 million revolving credit
facility, including a $2.0 million sublimit for letters of credit and a $5.0
million swingline facility. In connection with the Sale described in
note 8, the Company terminated the Credit Agreement with KeyBank and
applied approximately $82.0 million of the gross proceeds from the Sale to repay
all outstanding indebtedness under the Credit Agreement other than (a) a
$500,000 letter of credit previously issued by KeyBank,on behalf of the Lenders, pursuant to the
Credit Agreement, which has been fully cash collateralized by the Company and
(b) the Swap Agreement described in more detail below. WebMediaBrands
expensed $2.1 million in unamortized debt issuance costs related to the Credit
Agreement during the first quarter of 2009.




Pursuant
to the Credit Agreement, WebMediaBrands also entered into a derivative interest
rate swap that was to mature in July 2013, which had been designated as a cash
flow hedge. The objective of the hedge was to eliminate the variability of cash
flows in the interest payments of $50.0 million of variable rate debt.
Under this agreement, WebMediaBrands received a floating rate based on the LIBOR
interest rate, and paid a fixed rate of 5.58% on the notional amount. Due to the
termination of the Credit Agreement, the derivative interest rate swap no longer
met the criteria of hedge accounting under the accounting pronouncement related
to derivative instruments and hedging activities. As a result, during the nine
months ended September 30, 2009, the Company recorded a charge of $6.7 million
as loss on fair value of interest rate swap in the consolidated statement of
operations. As described in more detail below, the Swap Agreement was terminated
on May 29, 2009.




As
required by the accounting pronouncement related to derivative instruments and
hedging activities, all derivative instruments are recorded in the consolidated
balance sheet at fair value as derivative assets or derivative liabilities.
Subject to specific qualifying conditions in the accounting pronouncement
related to derivative instruments and hedging activities, a derivative
instrument may be designated either as a hedge of the fair value of an asset or
liability (fair value hedge), or as a hedge of the variability of cash flows of
an asset or liability or forecasted transaction (cash flow hedge). Gains and
losses on derivative instruments designated as cash flow hedges, to the extent
they are effective, are recorded in accumulated other comprehensive income, a
component of stockholders’ equity, and subsequently reclassified to earnings to
offset the impact of the hedged items when they occur. In the event the
forecasted transaction to which a cash flow hedge relates is no longer likely,
the amount in accumulated other comprehensive income is recognized in earnings
and generally the derivative is terminated. Changes in the fair value of
derivatives not qualifying as hedges, and for any portion of a hedge that is
ineffective, are reported in earnings. The net interest paid or received on
interest rate swaps is recognized as interest expense. Gains resulting from the
early termination of interest rate swap agreements are deferred and amortized as
adjustments to interest expense over the remaining period of the debt originally
covered by the terminated swap.




WebMediaBrands
determined the initial fair value of the derivative interest rate swap using
inputs that were available in the public swap markets for similarly termed
instruments and then made adjustments for the terms specific to its instrument.
WebMediaBrands continued to value this security based on quotes from its
counterparties. Because the inputs used to value the derivative interest rate
swap were observable, WebMediaBrands classified them as level 2 inputs in
accordance with the accounting pronouncement related to fair value measurements
and disclosures.




In
connection with its termination of the Credit Agreement, WebMediaBrands entered
into (a) the First Amendment to ISDA Master Agreement, dated as of
February 23, 2009 (the “Swap Amendment”), with respect to that certain ISDA
Master Agreement, dated as of July 19, 2007, with KeyBank (the “Original
Swap Agreement” and, together with the Swap Amendment, the “Swap Agreement”) and
(b) the Credit Support Agreement, dated as of February 23, 2009, with
Alan M. Meckler (“Mr. Meckler”) and Ellen L. Meckler (“Mrs.
Meckler”).




The
Company’s obligations under the Swap Agreement were secured by a first priority
security interest in all of the Company’s assets and the assets of its
wholly-owned subsidiary, Mediabistro.com Inc., granted pursuant to various
security agreements that each of the Company and Mediabistro entered into with
KeyBank on July 12, 2007 and July 30, 2007, respectively, and amended
on February 23, 2009 (collectively, the “Amended Security Agreements”). The
Amended Security Agreements evidenced KeyBank’s security interest in both the
Company’s assets (after giving effect to the sale of Jupiterimages) and
Mediabistro.com Inc.’s assets, which was granted in connection with the Swap
Amendment. Under the Swap Amendment, a termination or event of default under any
of the Amended Security Agreements would entitle KeyBank to terminate the Swap
Agreement.




14




In
connection with the Credit Support Agreement, Mr. Meckler agreed to
personally guarantee the Company’s obligations under the Swap Agreement and
Mrs. Meckler agreed to grant a security interest to KeyBank in respect of
certain of her assets to support Mr. Meckler’s personal guarantee to
KeyBank (the “Guarantee”). In exchange for Mr. Meckler’s personal guarantee
to KeyBank and Mrs. Meckler’s grant of a security interest to KeyBank, the
Company agreed pursuant to the Credit Support Agreement to, among other things,
pay cash consideration to Mr. Meckler and Mrs. Meckler on a monthly
basis. The amount of the cash consideration was equal to one-twelfth of one
percent of the notional amount of the Swap Agreement, which notional amount was
initially $49,250,000 but decreased by $125,000 at the beginning of each fiscal
quarter commencing on March 31, 2009. In addition, the Company acknowledged
that Mr. Meckler might, in certain circumstances, have the right to
purchase KeyBank’s interests in the Swap Agreement and the Amended Security
Agreements. In the event that Mr. Meckler or Mrs. Meckler was required
to satisfy the Company’s obligations under the Swap Agreement, Mr. Meckler
and Mrs. Meckler would have been subrogated to KeyBank’s rights against the
Company under the Swap Agreement and the Amended Security
Agreements.




Since the Guarantee was tied to the
interest rate swap described above, it represented a derivative instrument under
the accounting pronouncement related to derivative instruments and hedging
activities, which did not meet the criteria for hedge accounting. As a result,
the changes in the fair value of the Guarantee were recorded against the loss on
the fair value of the interest rate swap in the consolidated statements of
operations. The fair value of theGuarantee was $0 at inception and at
the date of termination. The fair value was determined based on the difference
between quotes from other counterparties and the fee payable under the
Guarantee. Because the inputs used to value the Guarantee were observable,
WebMediaBrands had classified them as level 2 inputs in accordance with the
accounting pronouncement related to fair value measurements and
disclosures.





On May
29, 2009, WebMediaBrands paid off and terminated its Swap Agreement using the
proceeds of a $7.2 million loan to the Company from Mr. Meckler (the “Meckler
Loan”). The Company obtained the Meckler Loan and paid off and terminated the
Swap Agreement in order to restructure and eliminate the Company’s ongoing
obligations under the Swap Agreement and preserve working capital. In connection
with these transactions, the Company entered into various security agreements to
secure the Meckler Loan, as described in more detail below, and terminated
various agreements securing the Swap Agreement, and Swap Security
Agreement.





On May
29, 2009, the Company (1) entered into a promissory note jointly and severally
payable by the Company and Mediabistro, to Mr. Meckler (the “Note”), (2) entered
into a Security Agreement by and between the Company and Mr. Meckler (the
“Security Agreement”) pursuant to which the Company granted to Mr. Meckler a
security interest in the Company’s assets, (3) entered into an Intellectual
Property Security Agreement by and between the Company and Mr. Meckler (the “IP
Security Agreement”) pursuant to which the Company granted to Mr. Meckler a
security interest in the Company’s intellectual property, (4) entered into a
Pledge Agreement by the Company in favor of Mr. Meckler (the “Pledge Agreement”)
pursuant to which the Company granted to Mr. Meckler a security interest in and
an assignment of all of the shares of stock or other equity interest of
Mediabistro owned by the Company, and (5) agreed to enter into a Blocked Account
Control Agreement by and among the Company, Mr. Meckler and a depositary bank,
to further secure the Note (the “Control Agreement,” and together with the Note,
the Security Agreement, the IP Security Agreement and the Pledge Agreement, the
“Company Loan Documents”).





Simultaneously,
Mediabistro (1) entered into a Security Agreement by and between Mediabistro and
Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security
interest in Mediabistro’s assets (the “Mediabistro Security Agreement”), (2)
entered into an Intellectual Property Security Agreement by and between
Mediabistro and Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler
a security interest in Mediabistro’s intellectual property (the “Mediabistro IP
Security Agreement”), and (3) agreed to enter into a Blocked Account Control
Agreement by and among Mediabistro, Mr. Meckler and a depositary bank, to
further secure the Note (the “Mediabistro Control Agreement” and, together with
the Mediabistro Security Agreement and the Mediabistro IP Security Agreement,
the “Mediabistro Documents”).





To fund
the Meckler Loan, Mr. Meckler used a portion of the proceeds of a residential
mortgage loan that Bank of America, N.A. (“BOA”) granted to Mr. Meckler and Mrs.
Meckler (the “BOA Loan”). Pursuant to a Collateral Assignment of the Note dated
May 29, 2009, by Mr. Meckler to BOA, Mr. Meckler collaterally assigned the Note
to BOA as additional collateral for the BOA Loan. Payment terms of the Meckler
Loan reflect pass through of the BOA Loan payment terms (excluding those funds
borrowed pursuant to the BOA Loan for Mr. Meckler’s personal use). As a result,
the interest rate, amortization schedule and maturity date of each loan are
identical.




15




The
principal amount of the Meckler Loan equals the amount required to pay off and
terminate the Swap Agreement between the Company and KeyBank and related
transactional expenses. The interest rate of the Note is 4.7% per annum.
Interest on the outstanding principal amount is due and payable on the first day
of each calendar month for a period of five years. Thereafter, principal and
interest is due and payable in equal monthly payments in an amount sufficient to
pay the loan in full based on an amortization term of 15 years, to be paid in
full in the two remaining years. The Note is due and payable in full on May 29,
2016, and may be prepaid at any time without penalty or premium. So long as any
amount remains outstanding under the Meckler Loan, the Company must pay Mr.
Meckler a monthly accommodation fee of $40,000 in order to adjust the effective
interest rate of the Note. The effective interest rate on the Note was 11.4% at
September 30, 2009.  Interest expense on the Note was $205,000 and $444,000
during the three and nine months ended September 30, 2009,
respectively.


The
Company Loan Documents and Mediabistro Documents contain customary terms for a
loan transaction of this type. If an Event of Default (as defined in the Note)
occurs and is continuing beyond a specified cure period, Mr. Meckler may declare
the Meckler Loan immediately due and payable. The Meckler Loan also will become
immediately due and payable upon certain events of bankruptcy or insolvency or
in the event of a Change of Control (as defined in the Note) of Mediabistro or
the Company. The Note must be repaid in full if Mr. Meckler is required to repay
the BOA Loan whether due to an Event of Default of the Company or Mediabistro or
otherwise.





The
Company Loan Documents were approved by all of the independent members of the
Company’s Board of Directors, each of whom also has no direct or indirect
interest in the Company Loan Documents or Mediabistro Documents (the
“Disinterested Directors”), following Mr. Meckler’s disclosure to such
Disinterested Directors of the terms of the Company Loan Documents and
Mediabistro Documents.





11.
INCOME TAXES




The
Company recorded a provision for income taxes of $15.9 million during the three
and nine months ended September 30, 2008, respectively. The income tax provision
is primarily related to the establishment of a valuation allowance on certain
deferred tax assets that were recorded as of December 31, 2007. The income tax
provision is also impacted by income taxes accrued in foreign jurisdictions
where we have income, partially offset by an income tax benefit related to
losses incurred for United States federal income tax purposes that can be
carried back.




The
Company recorded a provision for income taxes of $975,000 and a benefit for
income taxes of $1.6 million during the three and nine months ended September
30, 2009, respectively. The income tax provision for the three months ended
September 30, 2009 is primarily due to the reversal of the income tax benefit
previously recognized on the carryforward of 2005 net operating losses and the
carryback of 2007 and 2008 net operating losses to 2006. The 2006 federal income
tax return was amended during the third quarter of 2009 in order to include
stock option expense and other adjustments that were not included in the
original 2006 return. Along
with the amendment of its 2006 federal income tax return, the Company
previously amended its 2004 and 2005 federal income tax returns for additional
stock option deductions.  Those deductions resulted in an benefit of
$3.2 million to additional paid-in capital during the third quarter of
2009.During the nine months ended September 30, 2009, the tax benefit
for income taxes consisted primarily of a net tax benefit of $2.9 million
recorded on the reclassification of the fair value adjustments on the interest
rate swap from other comprehensive income (loss) to loss from continuing
operations. The income tax benefit was partially offset by a provision for
income taxes of $1.3 million for the nine months ended September 30, 2009, which
was primarily due to the reversal of the income tax benefit mentioned above, the
reversal of a portion of the reserve for uncertain tax positions and additional
tax amortization on indefinite lived assets.




WebMedia
Brands's unrecognized tax benefits were decreased by $1.1 million during the
three and nine months ended September 30, 2009.  The decrease was due
primarily to the amendment of WebMediaBrands's 2005 and 2006 federal income
tax returns that resulted in an increase in taxable income for items
that were previously classified as uncertain tax positions. The increase in
taxable income was offset by the additional stock option deductions mentioned
above. The Company also reversed a liability of$239,000 related
to interest expense that was previously accrued on the $1.1million
of unrecognized tax benefits mentioned above.




As of
September 30, 2009, the total amount of unrecognized tax benefits
was $300,000, of which $200,000 would affect the effective tax rate, if
recognized, as of September 30, 2009.




Based on
current projections, management believes that it is more likely than not that
WebMediaBrands will have insufficient taxable income to allow recognition of its
deferred tax assets. Accordingly, a valuation allowance has been established
against deferred tax assets to the extent that deductible temporary differences
cannot be offset by taxable temporary differences. To the extent that the net
book value of indefinite lived assets exceeds the net tax value of indefinite
lived assets, an additional tax provision will be incurred as the assets are
amortized.




Getty
Images has not requested a 338(h)(10) election to treat the acquisition of
Jupiterimages as an asset purchase. For the three and nine months ended
September 30, 2009, the Sale has been reported as a stock sale for tax purposes
resulting in a taxable loss on the Sale of the shares of Jupiterimages. To the
extent the taxable loss is deductible, a full valuation allowance will be
established against the deferred tax asset. Accordingly, there is no income tax
benefit or provision reported as part of the gain on sale of discontinued
operations.




16




12.
COMMITMENTS AND CONTINGENCIES
  WebMediaBrands is subject to legal proceedings and
claims that arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
should not materially affect the financial statements ofWebMediaBrands.
  13. COMPREHENSIVE LOSS




Comprehensive
loss is as follows (in thousands):


Three
      Months Ended
              September 30,
            
            
            Nine
      Months Ended
              September 30,2008
            
            
            2009
            
            
            2008
            
            
            2009Net
      loss
            
            $
            (62,622
            )
            
            $
            (4,645
            )
            
            $
            (67,018
            )
            
            $
            (14,527
            )Foreign
      currency translation adjustment
            
            
            (3,376
            )
            
            
            (2
            )
            
            
            (2,828
            )
            
            
            (1,560
            )Reclassification
      adjustment for loss included in net income related to foreign
      currency
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,163Change
      in fair value of interest rate swap, net of income taxes
            
            
            (164
            )
            
            
            —
            
            
            
            34
            
            
            
            320Reclassification
      adjustment for loss included in net income related to the interest rate
      swap
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,328(
            
            
            
            (8,Total
      comprehensive loss
            
            $
            (66,162
            )
            
            $
            (4,647
            )
            
            $
            (69,812
            )
            
            $
            (10,276
            )




14.
WORKFORCE REDUCTION PLAN




In an effort to reduce ongoing
operating costs and improve the organizational structure, efficiency and
productivity of the Company, WebMediaBrands executed and completed a workforce
reduction plan in the first quarter of 2009. The plan reduced the Company’s
workforce by approximately 70 full-time employees.  During the first quarter of 2009,
WebMediaBrands recognized expense of $567,000 in severance related to the
workforce reduction plan and recorded the expense as restructuring charge in the
consolidated statements of operations.  As of September 30, 2009, all severance
related to the workforce reduction plan had been paid.




15.  LEASE
TERMINATION




WebMediaBrands entered into alease termination
agreement for its facility in Darien, Connecticut. The Company remained in the
Darien, Connecticut facility through September 30, 2009. Pursuant to the lease termination, WebMediaBrands
recognized expense of $150,000 for the lease termination and $158,000 for the
forfeiture of the related security deposit and recorded the expense as a
restructuring charge in the consolidated statement of operations during the
second quarter of 2009.  All liabilities related to the lease
termination had been paid as of September 30, 2009.


17





Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




The
following discussion should be read in conjunction with our unaudited
consolidated condensed financial statements and the accompanying notes, that
appear elsewhere in this filing. Statements in this Form 10-Q, that are not
historical facts are “forward-looking statements” under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those described. The potential risks
and uncertainties address a variety of subjects including, for example: the
successful completion of the sale of the internet.com business to QuinStreet,
Inc.; general economic conditions; the competitive environment in which
WebMediaBrands competes; the unpredictability of WebMediaBrands’s future
revenues, expenses, cash flows and stock price; WebMediaBrands’s ability to
integrate acquired businesses, products and personnel into its existing
businesses; WebMediaBrands’s dependence on a limited number of advertisers; and
WebMediaBrands’s ability to protect its intellectual property. For a more
detailed discussion of such risks and uncertainties, refer to WebMediaBrands’s
other reports filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. The forward-looking statements included herein
are made as of the date of this Form 10-Q, and we are under no obligation to
update the forward-looking statements after the date hereof, except as required
by law.




Recent
Developments




On
February 23, 2009, we announced the closing of the previously announced
sale of our Online images business, or Jupiterimages, to Getty Images, Inc.
(“Getty Images”) pursuant to the terms and conditions of a stock purchase
agreement dated October 22, 2008 for an aggregate purchase price of $96.0
million in cash, subject to a working capital purchase price adjustment (the
“Sale”). Any claims by Getty Images on the working capital adjustment could have
a material effect on us.  As a result of the Sale, we are accounting
for the operations of our Online images business as a discontinued operation and
our continuing operations is comprised solely of our Online media
business.





On April
29, 2009, we acquired the assets of Brandsoftheworld.com for $1.5 million in
cash. Brandsoftheworld.com is a user generated content site where readers view
and download more than 160,000 vector format brands and logos. The site has
approximately 2 million unique visitors and over 30 million page views a
month.





On August
7, 2009, we entered into an asset purchase agreement to sell our Internet.com
division to QuinStreet, Inc. for an aggregate purchase price of $18.0 million in
cash, subject to a working capital purchase price adjustment. The consummation
of the transaction is subject to approval by WebMediaBrands’s stockholders and
other customary closing conditions. As such, the Business Assets and operations
of Internet.com are classified within continuing operations for the periods
presented.




Overview




We are a
leading global provider of original information, job boards and events for
information technology, or IT, business and creative professionals.




WebMediaBrands
currently includes three distinct online networks: internet.com for IT and
business professionals and for developers; Mediabistro.com for media
professionals; and Graphics.com for design and creative professionals. The
networks include more than 150 Web sites and 150 e-mail newsletters that are
viewed by over 20 million users monthly. WebMediaBrands also includes
specialized career Web sites for select professional communities, which can be
found on Mediabistro.com and JustTechJobs.com. In addition, WebMediaBrands
includes Mediabistro events, which produce offline conferences and trade shows
focused on IT, media and business-specific topics.




We
generate our revenues from:




●
              advertising and custom publishing on our Web sites, e-mail newsletters and
      online discussion forums;●
              e-commerce agreements, which generally include a fixed advertising
      fee;●
              fees charged for online job postings;●
              attendee registration fees for our online and in-person training
      courses;●
              advertiser sponsorships for our Webcasts;●
              subscription sales for our paid e-mail newsletters and
      services;●
              attendee registration fees to our conferences and trade
    shows;●
              exhibition space fees and vendor sponsorships to our conferences and trade
      shows;●
              renting our permission based opt-in e-mail list names;
  and●
              licensing our editorial content, software and brands to third parties for
      fixed fees and royalties based on the licensee’s revenues generated by the
      licensed property.





18




Advertisers generally place fewer advertisements
during the first and third calendar quarters of each year, which directly
affects our business. Our results will also be impacted by the number and size
of events we hold in each quarter. In addition, there may be fluctuations as
events held in one period in the current year may be held in a different period
in future years.


The
principal costs of our business relate to payroll for our editorial, technology,
operations and sales personnel; technology-related costs; facilities and
equipment; and venue, speaker and advertising expenses for training and
events.




Results
of Operations




Revenues





Revenues
were $7.6 million for the three months ended September 30, 2008 and $4.5 million
for the three months ended September 30, 2009, representing a decrease of 40%.
Revenues were $24.9 million for the nine months ended September 30, 2008 and
$16.1 million for the nine months ended September 30, 2009, representing a
decrease of 35%. These changes were primarily due to a decline in advertising
spending by technology companies and a decline in online job posting revenue,
which were both primarily due to the continued downturn in the U.S.
economy.




The
following table sets forth, for the periods indicated, the components of our
revenues (in thousands):





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2008
            
            
            2009
            
            
            2008
            
            
            2009Advertising
            
            $
            5,483
            
            
            $
            3,244
            
            
            $
            18,093
            
            
            $
            12,091Online
      job postings
            
            
            1,055
            
            
            
            585
            
            
            
            3,473
            
            
            
            1,568Other
            
            
            1,037
            
            
            
            711
            
            
            
            3,323
            
            
            
            2,484Total
            
            $
            7,575
            
            
            $
            4,540
            
            
            $
            24,889
            
            
            $
            16,143





The
following table sets forth a quarter-by-quarter comparison of the number of our
online advertisers and the average revenue derived from each advertiser (dollars
in thousands):


Number
              of Advertisers
            
            Average Revenue
              per
      AdvertiserMarch
      31, 2008
            217
            
            
            $
            26June 30,
      2008
            210
            
            
            
            28September 30,
      2008
            207
            
            
            
            24December 31,
      2008
            187
            
            
            
            29March 31,
      2009
            162
            
            
            
            25June
      30, 2009
            180
            
            
            
            25September
      30, 2009
            169
            
            
            
            19




Cost
of revenues




Cost of
revenues primarily consists of payroll and benefits costs for technology and
editorial personnel, freelance costs, communications infrastructure and Web site
hosting. Cost of revenues excludes depreciation and
amortization.  Cost of revenues was $4.3 million for the three months
ended September 30, 2008 and $2.9 million for the three months ended September
30, 2009, representing a decrease of 32%. This change was primarily due to a
decrease in employee-related costs of $816,000, a decrease in print magazine
costs of $199,000, a decrease in freelance costs of $106,000, and a decrease in
training course costs of $104,000.




Cost of
revenues was $13.3 million for the nine months ended September 30, 2008 and
$10.3 million for the nine months ended September 30, 2009, representing a
decrease of 23%. This change was primarily due to a decrease in employee-related
costs of $1.4 million, a decrease in event-related costs of $497,000, a decrease
in freelance costs of $352,000, a decrease in print magazine costs of $346,000,
and a decrease in training course costs of $169,000.





19


We intend
to make investments through internal development and, where appropriate
opportunities arise, acquisitions to expand our content offerings. We may need
to increase our spending in order to create additional content related to new
topics or offerings.




Advertising,
promotion and selling





Advertising,
promotion and selling expenses primarily consist of costs related to sales and
marketing staff, sales commissions and promotion costs.  Advertising,
promotion and selling expenses were $2.0 million for the three months ended
September 30, 2008 and $1.4 million for the three months ended September 30,
2009, representing a decrease of 30%. This change was primarily due to a
decrease in employee-related costs of $380,000 and marketing costs of
$94,000.





Advertising,
promotion and selling expenses were $6.2 million for the nine months ended
September 30, 2008 and $4.8 million for the nine months ended September 30,
2009, representing a decrease of 23%. This change was primarily due to a
decrease in employee-related costs of $900,000, event advertising costs of
$150,000 and marketing costs of $50,000.




General
and administrative




General
and administrative expenses primarily consist of payroll and benefit costs for
administrative personnel, office-related costs and professional fees. General
and administrative expenses were $4.5 million for the three months ended
September 30, 2008 and $2.3 million for the three months ended
September 30, 2009, representing a decrease of 48%. This change was
primarily due to a decrease in employee-related costs of $1.1 million, a
decrease in stock-based compensation of $644,000, and a decrease in professional
fees of $177,000.





General
and administrative expenses were $16.3 million for the nine months ended
September 30, 2008 and $10.2 million for the nine months ended
September 30, 2009, representing a decrease of 37%. This change was
primarily due to a decrease in employee-related costs of $2.7 million, a
decrease in professional fees of $1.5 million and a decrease in stock-based
compensation of $1.2 million.





Depreciation and amortization





Depreciation
expense was $299,000 for the three months ended September 30, 2008 and $276,000
for the three months ended September 30, 2009, representing a decrease of 8%.
This decrease was due primarily to the write-off of fixed assets during the
fourth quarter of 2008 and a decrease in capital expenditures. Depreciation
expense was $761,000 for the nine months ended September 30, 2008 and $824,000
for the nine months ended September 30, 2009, representing an increase of
8%.  This increase was due primarily to leasehold improvements made to
our New York facility during the second quarter of 2008.





Amortization
expense was $811,000 for the three months ended September 30, 2008 and $216,000
for the three months ended September 30, 2009, representing a decrease of 73%.
Amortization expense was $2.4 million for the nine months ended September 30,
2008 and $700,000 for the nine months ended September 30, 2009, representing a
decrease of 71%. These decreases are due primarily to the write-off of
intangible assets during the fourth quarter of 2008.





Our depreciation and amortization
expenses might vary in future periods based upon a change in our capital
expenditure levels or any future acquisitions.




Impairment




Because
of declining real estate markets, during the first quarter of 2009, we listed
the building and land of our Peoria, Illinois facility for sale at an amount
that was less then the carrying value. As a result, we recorded an impairment
charge of $662,000 during the nine months ended September 30,
2009.




We conduct our
annual impairment review in the fourth quarter of each fiscal
year.  Due to the continued downturn in the U.S economy and the impact
that the economy has had on our projections, we anticipate that these events
will result in an impairment charge during the fourth quarter of 2009. We
will complete our valuation of impairment under the accounting pronouncement
related to the impairment of goodwill and other long-lived assets during the
fourth quarter of 2009.




Restructuring
charge




During
the three and nine months ended September 30, 2009, we recorded expense of $0
and $875,000 respectively, related to the termination of employees and the
termination of our Darien, Connecticut office lease.





20





Other
income (loss), net
  Other
income of $48,000 during the three months ended September 30, 2009 relates
primarily to rent received from Getty Images (US), Inc. in conjunction with
their lease of our Peoria facility.
  Other
income of $179,000 during the nine months ended September 30, 2009 relates
primarily to rent received from Getty Images (US), Inc. and net foreign currency
transaction gains.


Interest
income and interest expense




The
following table sets forth, for the periods indicated, a comparison of our
interest income and interest expense (dollars in thousands):


Three Months Ended
              September 30,
            
            
            2008 vs. 2009
            
            
            Nine
      Months Ended
              September 30,
            
            
            2008 vs. 20092008
            
            
            2009
            
            
            $
            
            
            
            %
            
            
            
            2008
            
            
            
            2009
            
            
            $
            
            
            $
            %Interest
      income
            
            $
            6
            
            
            $
            3
            
            
            $
            (3
            )
            
            
            (50%
            )
            
            $
            12
            
            
            $
            161
            
            
            $
            149
            
            
            
            1,242%Interest
      expense
            
            
            (1,625
            )
            
            
            (182
            )
            
            
            1,443
            
            
            
            89
            
            
            
            (5,198
            )
            
            
            (1,674
            )
            
            
            3,524
            
            
            
            68




Interest
expense in 2008 and through the first quarter 2009 relates primarily to costs
associated with our senior credit facility. Interest expense in the second and
third quarter of 2009 relates primarily to costs associated with our loan from
related party. See Liquidity and Capital Resources below for a description of
the facility and loan.




Loss
on fair value of interest rate swap




Due to
the termination of our credit agreement with KeyBank as described in Liquidity
and Capital Resources below, the derivative interest rate swap no longer met the
criteria for hedge accounting under the accounting pronouncement related to
derivative instruments and hedging activities and therefore, during the nine
months ended September 30, 2009, the Company recorded a loss of $6.7 million on
the fair value of interest rate swap in the consolidated statements of
operations.




Provision
(benefit) for income taxes




We
recorded a provision for income taxes of $15.9 million during the three and nine
months ended September 30, 2008, respectively. The income tax provision is
primarily related to the establishment of a valuation allowance on certain
deferred tax assets that were recorded as of December 31, 2007. The income tax
provision is also impacted by income taxes accrued in foreign jurisdictions
where we have income, partially offset by an income tax benefit related to
losses incurred for United States federal income tax purposes that can be
carried back.




We
recorded a provision for income taxes of $975,000 and a benefit for income
taxes of $1.6 million during the three and nine months ended September 30, 2009,
respectively. The income tax provision for the three months ended September 30,
2009 is primarily due to the reversal of the income tax benefit previously
recognized on the carryforward of 2005 net operating losses and the carryback of
2007 and 2008 net operating losses to 2006. The 2006 federal income tax return
was amended during the third quarter of 2009 in order to include stock option
expense and other adjustments that were not included in the original 2006
return. Along
with the amendment of our 2006 federal income tax return, we
previously amended our 2004 and 2005 federal income tax returns for
additional stock option deductions.  Those deductions resulted in an
benefit of $3.2 million to additional paid-in capital during the third
quarter of 2009.During the nine months ended September 30, 2009, the tax
benefit for income taxes consisted primarily of a net tax benefit of $2.9
million recorded on the reclassification of the fair value adjustments on the
interest rate swap from other comprehensive income (loss) to loss from
continuing operations. The income tax benefit was partially offset by a
provision for income taxes of $1.3 million for the nine months ended September
30, 2009, which was primarily due to the reversal of the income tax benefit
mentioned above, the reversal of a portion of the reserve for uncertain tax
positions and additional tax amortization on indefinite lived
assets.




Our unrecognized
tax benefits were decreased by $1.1 million during the three and nine months
ended September 30, 2009.  The decrease was due primarily to the
amendment of our 2005 and 2006 federal income tax returns that
resulted in an increase in taxable income for items that were
previously classified as uncertain tax positions. The increase in
taxable income was offset by the additional stock option deductions mentioned
above. We also reversed a liabilityof$239,000 related
to interest expense that was previously accrued on the $1.1million
of unrecognized tax benefits mentioned above.




As of
September 30, 2009, the total amount of unrecognized tax benefits
was $300,000, of which $200,000 would affect the effective tax rate, if
recognized, as of September 30, 2009.





Based on
current projections, management believes that it is more likely than not that we
will have insufficient taxable income to allow recognition of our deferred tax
assets. Accordingly, we have established a valuation allowanceagainst deferred tax assets to the extent that deductible temporary differences
cannot be offset by taxable temporary differences. To the extent that the net
book value of indefinite lived assets exceeds the net tax value of indefinite
lived assets, we will incur an additional tax provision as the assets are
amortized.




Getty
Images has not requested a 338(h)(10) election to treat the acquisition of our
Online images business, Jupiterimages, as an asset purchase. For the three and
nine months ended September 30, 2009, the Sale has been reported as a stock sale
for tax purposes resulting in a taxable loss on the Sale of the shares of
Jupiterimages. To the extent the taxable loss is deductible, a full valuation
allowance will be established against the deferred tax asset. Accordingly, there
is no income tax benefit or provision reported as part of the gain on sale of
discontinued operations.




21


Noncontrolling
interest
  Noncontrolling
interest represents the minority stockholder’s proportionate share of profits or
losses of our majority-owned Japanese subsidiary. Subsequent to March 31,
2009, we no longer had any noncontrolling interests.


Liquidity
and Capital Resources




The
following table sets forth, for the periods indicated, a comparison of the key
components of our liquidity and capital resources (dollars in
thousands):


Nine
      Months Ended
                September
      30,
              
              2008
      vs. 20092008
              
              2009
              
              $
              
              
              
              %Operating
      cash flows
              
              $
              12,218
              
              
              $
              (10,715
              )
              
              $
              (22,933
              )
              
              
              (188%
              )Investing
      cash flows
              
              
              (10,101
              )
              
              
              88,819
              
              
              
              98,920
              
              
              
              979Financing
      cash flows
              
              
              (5,023
              )
              
              
              (77,660
              )
              
              
              (72,637
              )
              
              
              (1,446
              )Purchases
      of businesses, assets and other
              
              
              (854
              )
              
              
              (1,630
              )
              
              
              (776
              )
              
              
              (91
              )Purchases
      of property and equipment
              
              
              (1,973
              )
              
              
              (539
              )
              
              
              1,434
              
              
              
              73
  As
      of
              
              
              2008
      vs. 2009December 31,
                2008
              
              
              September
      30,
                2009
              
              
              $
              
              
              
              %Cash
      and cash equivalents
              
              $
              3,755
              
              
              $
              4,134
              
              
              $
              379
              
              
              
              10%Accounts
      receivable, net
              
              
              6,673
              
              
              
              3,229
              
              
              
              (3,444
              )
              
              
              (52
              )Loan
      from related party
              
              
              -
              
              
              
              7,197
              
              
              
              7,197
              
              
              
              100Working
      capital
              
              
              (88,693
              )
              
              
              3,313
              
              
              
              92,006
              
              
              
              104




Since
inception, we have funded operations through various means, including public
offerings of our common stock, the sales of our Events, Research and Online
images businesses, credit agreements and cash flows from operating activities.
Our cash balance increased from December 31, 2008 due primarily to proceeds
from the sale of the Online images business, after repayment of
debt.





Operating
activities. Cash used by operating activities decreased during the nine
months ended September 30, 2009 is due primarily to loss from continuing
operations.




Investing
activities. The amounts of cash used in investing activities vary in
correlation to the number and cost of the acquisitions consummated. Net cash
provided by investing activities in 2009 related primarily to the net proceeds
from the sale of the Online images business. Net cash used in investing
activities in 2008 related primarily to information technology related
spending.




Financing
activities. Cash used in financing activities during the nine months
ended September 30, 2008 and 2009 related primarily to repayments under our
credit facilities.




We were
party to a Credit and Security Agreement, dated as of July 12, 2007 (the
“Credit Agreement”), with lenders (the “Lenders”), KeyBank National Association,
as the lead arranger, sole book runner and administrative agent (the
“Administrative Agent”), and Citizens Bank, N.A., as Syndication Agent. The
Credit Agreement provided for a $115.0 million senior credit facility. The
senior credit facility was comprised of (i) a $75.0 million term loan
facility, that was drawn in full on July 12, 2007, and (ii) a
$40.0 million revolving credit facility, including a $2.0 million sublimit
for letters of credit and a $5.0 million swingline facility. In connection with
the Sale, as described in note 8 of the notes to unaudited consolidated
financial statements, the Company terminated the Credit Agreement and applied
approximately $82.0 million of the gross proceeds from the Sale to repay all
outstanding indebtedness under the Credit Agreement other than (a) a
$500,000 letter of credit previously issued by KeyBank, on behalf of the
Lenders, pursuant to the Credit Agreement, which has been fully cash
collateralized by the Company and (b) the Swap Agreement. We made quarterly
payments pursuant to the Swap Agreement, as amended, that were calculated on a
net basis and based on the notional amount under the Swap Agreement (with the
notional amount amortizing over time). As described in more detail in the
Related Party Transaction section of this Item 2, the Swap Agreement with
KeyBank was terminated on May 29, 2009. We expensed $2.1 million in unamortized
debt issuance costs related to the Credit Agreement during the first quarter of
2009.


22


We expect
to continue our investing activities on a limited basis for the foreseeable
future, which includes the potential to strategically acquire companies and
content that are complementary to our business. We expect to finance any
near-term acquisitions with cash, which as noted above is primarily proceeds
from the Sale.
  Our
existing cash balances might decline during the remainder of 2009 if the general
economic downturn continues or we change our planned cash outlay. However, after
applying approximately $82.0 million of the $96.0 million in gross proceeds from
the Sale to repay our outstanding debt obligations and paying Sale-related
costs, we feel as though the remaining cash flow together with our existing cash
balances, proceeds from the proposed sale of our Internet.com assets, our
current business plan and revenue prospects will be sufficient to meet the
working capital and operating resource expenditure requirements of our business
for the foreseeable future.




Off-Balance
Sheet Arrangements




We have
not entered into off-balance sheet arrangements or issued guarantees to third
parties.




Recent
Accounting Pronouncements




We are
required to adopt certain new accounting pronouncements. See note 3 to the
consolidated financial statements included in Item 1 of this Form
10-Q.




Related
Party Transactions




In
connection with the Sale, on February 23, 2009, we entered into
(a) the Swap Amendment, with respect to the Original Swap Agreement and
(b) the Credit Support Agreement, dated as of February 23, 2009, with
Alan M. Meckler (“Mr. Meckler”) and Ellen L. Meckler (“Mrs. Meckler”) (the
“Credit Support Agreement”). In connection with the Credit Support Agreement,
Mr. Meckler agreed to personally guarantee the Company’s obligations under
the Swap Agreement and Mrs. Meckler agreed to grant a security interest to
KeyBank in respect of certain of her assets to support Mr. Meckler’s
personal guarantee to KeyBank. In exchange for Mr. Meckler’s personal
guarantee to KeyBank and Mrs. Meckler’s grant of a security interest to
KeyBank, the Company agreed pursuant to the Credit Support Agreement to, among
other things, pay cash consideration to Mr. Meckler and Mrs. Meckler
on a monthly basis. The amount of the cash consideration was equal to
one-twelfth of one percent of the notional amount of the Swap Agreement, which
notional amount was initially $49,250,000 but decreased by $125,000 at the
beginning of each fiscal quarter commencing on March 31, 2009. In addition,
in certain circumstances, Mr. Meckler might have the right to assume
KeyBank’s interests in the Swap Agreement and the Swap Security Agreements and,
in the event that Mr. Meckler or Mrs. Meckler was required to satisfy
the Company’s obligations under the Swap Agreement, Mr. Meckler and
Mrs. Meckler would have been subrogated to KeyBank’s rights against the
Company under the Swap Agreement and the Swap Security Agreements. The Credit
Support Agreement was approved by all of the independent members of the
Company’s Board of Directors, each of whom also has no direct or indirect
interest in the Credit Support Agreement (the “Disinterested Directors”),
following Mr. Meckler’s disclosure to such Disinterested Directors of the
terms of the Credit Support Agreement.





On May
29, 2009, WebMediaBrands paid off and terminated its Swap Agreement using the
proceeds of a $7.2 million loan to the Company from Mr. Meckler (“Meckler
Loan”).  The Company obtained the Meckler Loan and paid off and
terminated the Swap Agreement in order to restructure and eliminate the
Company’s ongoing obligations under the Swap Agreement and preserve working
capital. In connection with these transactions, the Company entered into various
security agreements to secure the Meckler Loan, as described in more detail
below, and terminated various agreements securing the Swap Agreement and Swap
Security Agreement.





On May
29, 2009, the Company (1) entered into a promissory note jointly and severally
payable by the Company and Mediabistro, to Mr. Meckler (the “Note”), (2) entered
into a Security Agreement withMr. Meckler (the “Security Agreement”) pursuant to
which the Company granted to Mr. Meckler a security interest in the Company’s
assets, (3) entered into an Intellectual Property Security Agreement with Mr.
Meckler (the “IP Security Agreement”) pursuant to which the Company granted to
Mr. Meckler a security interest in the Company’s intellectual property, (4)
entered into a Pledge Agreement by the Company in favor of Mr. Meckler (the
“Pledge Agreement”) pursuant to which the Company granted to Mr. Meckler a
security interest in and an assignment of all of the shares of stock or other
equity interest of Mediabistro owned by the Company, and (5) agreed to enter
into a Blocked Account Control Agreement with Mr. Meckler and a depositary bank,
to further secure the Note (the “Control Agreement,” and together with the Note,
the Security Agreement, the IP Security Agreement and the Pledge Agreement, the
“Company Loan Documents”).




23




Simultaneously,
Mediabistro (1) entered into a Security Agreement with Mr. Meckler pursuant to
which Mediabistro granted to Mr. Meckler a security interest in Mediabistro’s
assets (the “Mediabistro Security Agreement”), (2) entered into an Intellectual
Property Security Agreement with Mr. Meckler pursuant to which Mediabistro
granted to Mr. Meckler a security interest in Mediabistro’s intellectual
property (the “Mediabistro IP Security Agreement”), and (3) agreed to enter into
a Blocked Account Control Agreement with Mr. Meckler and a depositary bank, to
further secure the Note (the “Mediabistro Control Agreement” and, together with
the Mediabistro Security Agreement and the Mediabistro IP Security Agreement,
the “Mediabistro Documents”).
  To fund
the Meckler Loan, Mr. Meckler used a portion of the proceeds of a residential
mortgage loan that Bank of America, N.A. (“BOA”) granted to Mr. Meckler and Mrs.
Meckler (the “BOA Loan”). Pursuant to a Collateral Assignment of the Note dated
May 29, 2009, by Mr. Meckler to BOA, Mr. Meckler collaterally assigned the Note
to BOA as additional collateral for the BOA Loan. Payment terms of the Meckler
Loan reflect pass through of the BOA Loan payment terms (excluding those funds
borrowed pursuant to the BOA Loan for Mr. Meckler’s personal use). As a result,
the interest rate, amortization schedule and maturity date of each loan are
identical.





The
principal amount of the Meckler Loan equals the amount required to pay off and
terminate the Swap Agreement between the Company and KeyBank and related
transactional expenses. The interest rate of the Note is 4.7% per annum.
Interest on the outstanding principal amount is due and payable on the first day
of each calendar month for a period of five years. Thereafter, principal and
interest is due and payable in equal monthly payments in an amount sufficient to
pay the loan in full based on an amortization term of 15 years, to be paid in
full in the two remaining years. The Note is due and payable in full on May 29,
2016, and may be prepaid at any time without penalty or premium. So long as any
amount remains outstanding under the Meckler Loan, the Company must pay Mr.
Meckler a monthly accommodation fee of $40,000 in order to adjust the effective
interest rate of the Note. The effective interest rate on the Note was 11.4% at
September 30, 2009. Interest expense on the Note was $205,000 and $444,000
during the three and nine months ended September 30, 2009,
respectively.





The
Company Loan Documents and Mediabistro Documents contain customary terms for a
loan transaction of this type. If an Event of Default (as defined in the Note)
occurs and is continuing beyond a specified cure period, Mr. Meckler may declare
the Meckler Loan immediately due and payable. The Meckler Loan also will become
immediately due and payable upon certain events of bankruptcy or insolvency or
in the event of a Change of Control (as defined in the Note) of Mediabistro or
the Company. The Note must be repaid in full if Mr. Meckler is required to repay
the BOA Loan whether due to an Event of Default of the Company or Mediabistro or
otherwise.





The
Company Loan Documents were approved by all of the independent members of the
Company’s Board of Directors, each of whom also has no direct or indirect
interest in the Company Loan Documents or Mediabistro Documents, following Mr.
Meckler’s disclosure to such Disinterested Directors of the terms of the Company
Loan Documents and Mediabistro Documents.





Critical
Accounting Policies




There
have been no changes to our critical accounting policies from those included in
our most recent Form 10-K for the year ended December 31,
2008.





Item 3.
            Quantitative &
      Qualitative Disclosures about Market
Risk




As a
smaller reporting company as defined by Item 10(f)(1) of Regulation S-K, we
are not required to provide the information required by this Item.





24




Item 4.
              Controls
      and Procedures
  Disclosure
Controls and Procedures
  The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer (who is also the Company’s Principal
Financial Officer and Chief Accounting Officer), has evaluated the effectiveness
of the Company’s disclosure controls and procedures as of the end of the period
covered by this report. Based on such evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, the Company’s
disclosure controls and procedures were not effective as of September 30, 2009
due to a material weakness in the accounting for income taxes as described in
the Company’s Annual Report on Form 10-K for the period ended December 31,
2008.
  Changes
in Internal Control Over Financial Reporting
  Other
than the remediation steps discussed below, there were no changes to the
Company’s internal control over financial reporting during the three and nine
months ended September 30, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




Remediation
Plan for Material Weakness in Internal Control over Financial
Reporting




Over
the past few years the Company has outsourced preparation of the calculation of
its quarterly and annual tax provisions, including tax calculations related to
purchase accounting and its tax compliance to an external expert. In order to
remediate the previously identified material weakness related to accounting for
income taxes, early in 2008, the Company hired an internal Tax Director, who has
experience in accounting for income taxes and hired additional personnel trained
and experienced in income tax accounting. Management recognized that a tax
department, staffed with the appropriate tax accounting expertise, is important
for the Company to maintain effective internal controls.




The
Company has developed the following plan to remediate the material weakness in
income taxes identified above.





•
            
            Improve
      documentation and institute more formalized review of tax positions taken,
      with senior management and external experts, to ensure proper evaluation
      and accounting treatment of complex tax issues, particularly in the area
      of purchase accounting; and





•
            
            Accelerate
      the timing of tax review activities during the financial statement closing
      process.




However,
due to the sale of its Online images business, the Company believes the
complexities that gave rise to this material weakness have been substantially
reduced.




We
anticipate the actions described above and resulting improvements in controls
will strengthen our internal control over financial reporting relating to
accounting for income taxes and will, over time, address the related material
weakness that we identified as of December 31, 2007 and 2008. However, due to
the recent sale of our Online images business and the fact that many of the
controls in our system of internal controls rely extensively on manual review
and approval, the successful operation of these controls for at least several
quarters may be required before management is able to conclude that the material
weakness has been remediated.


25
  PART II—OTHER INFORMATION





Item 1.
            LEGAL
      PROCEEDINGS




None.





Item 1A.
            RISK
      FACTORS




The
primary risk factors affecting our business have not changed materially from the
risk factors set forth in our Annual Report on Form 10-K for the year ended
December 31, 2008, subject to the additional risks posed by announcement of
the proposed sale of our Internet.com business, including risks we will not
close the sale timely or at all, and risks to our business pending
closing.





Item 2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Not
Applicable





Item 3.
            DEFAULTS
      UPON SENIOR SECURITIES




Not
Applicable





Item 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




Not
Applicable





Item 5.
            OTHER
      INFORMATION




Not
Applicable





Item 6.
            EXHIBITS




The
following is a list of exhibits filed as part of this Report on Form
10-Q.





Exhibit
              Number
            
            Description31.1
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232.1
            
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
            
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002


26





SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Dated:
      November 13, 2009
            
            WebMediaBrands
      Inc./s/
      Alan M. MecklerAlan
      M. MecklerChairman
      and Chief Executive Officer/s/
      Donald J. O’NeillDonald
      J. O’NeillVice
      President and Chief Financial Officer
              (Principal
      Financial Officer and Chief Accounting
Officer)









27